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Pre-election Economic and Fiscal Update 2014

Total Crown Balance Sheet

Figure 2.14 - Size of the Crown's balance sheet
Figure 2.14 - Size of the Crown's balance sheet.
Source:  The Treasury

Operating balance surpluses strengthen the balance sheet...

Net worth attributable to the Crown is forecast to grow steadily in nominal terms across the forecast period largely owing to forecast operating balance surpluses. Beyond June 2014, net worth attributable to the Crown is expected to grow by $17.6 billion to stand at $92.0 billion or 33.9% of GDP by 2017/18 (Figure 2.14).

...with assets increasing by $41 billion over the forecast period...

Figure 2.15 - Total Crown assets
Figure 2.15 - Total Crown assets.
Source:  The Treasury

Total assets are forecast to grow by $41.1 billion over the forecast period with the largest asset growth in the financial assets portfolio (Figure 2.15). This growth reflects investments by CFIs, with much of this growth recognised as gains in the Crown's operating balance.

The commercial asset portfolio is expected to increase by $9.6 billion over the forecast period, with growth in Kiwibank's mortgage book comprising $7.2 billion of this increase. (This growth is also reflected in the Crown's liabilities as Kiwibank deposits grow in line with these mortgages.)

Social assets (eg, schools, hospitals and social housing) are expected to increase by $16.8 billion by the end of the forecast period, primarily as a result of new capital investments via the Future Investment Fund.[6]

At the Budget Update, $1.7 billion remained in the fund to be allocated to future capital spending ($3.0 billion had already been allocated). Subsequent to Budget 2014, $0.1 billion has been allocated to regional roading packages. This is a pre-commitment against Budget 2015, leaving $1.6 billion yet to be allocated across Budget 2015 and Budget 2016.

Figure 2.16 - Total Crown liabilities
Figure 2.16 - Total Crown liabilities   .
Source:  The Treasury

...and liabilities begin to fall in 2017/18

The Crown's liabilities are expected to increase by $13.5 billion (Figure 2.16) over much of the forecast period, largely driven by increased borrowing ($16.4 billion over the forecast period) before beginning to fall in 2017/18. Borrowings are forecast to peak at $119.9 billion in 2016/17 before decreasing slightly to stand at $116.4 billion by 2017/18.

The Crown's balance sheet remains sensitive to market movements...

Many of the assets and liabilities on the Crown's balance sheet are measured at “fair value” in order to disclose current estimates of what the Crown owns and owes. While the measurement at fair value is seen as the most appropriate value of these items, it can be volatile, resulting in fluctuations in the value of the assets and liabilities reflecting changes in the market and underlying assumptions.

Financial assets have increased significantly in recent years. CFIs (eg, NZS Fund and ACC) hold investments to make financial returns, and those asset values are dependent on market prices, interest rates and exchange rates, which can all be volatile. For example, a 10% change in the NZ dollar exchange rate or share prices can impact the Crown's operating balance by $1 billion to $2 billion.

In addition, the Crown has a number of significant long-term liabilities (eg, ACC claims and GSF retirement liability) that are actuarially valued based on estimated future cash flows 50 years into the future. As part of the actuarial valuation, inflation rates are used to help estimate future cash flows, while discount rates are used to obtain the value of those future cash flows in today's dollars (their present value). Even small changes in these assumptions can have significant impacts on the valuation because the cash flows are so large and over such long periods.

...and judgements and estimates will also impact on the balance sheet...

Outside of market factors, valuations are subject to a number of judgements and estimates. In general, as time goes on, better information becomes available and initial estimates are updated to reflect current information. Some examples of this include ACC rehabilitation costs, earthquake-related insurance liabilities and student wage growth.

...while other risks still remain

In addition to those items on the balance sheet there are a number of liabilities (and assets) that may arise in the future but are not yet included in our forecasts, either because they are contingent on an uncertain future event occurring (eg, outcome of litigation) or the liability cannot be measured reliably. If these liabilities crystallise, there will be associated costs with a negative impact (or positive in the case of contingent assets) on the operating balance or net debt. Refer to page 75 for a list of the contingent liabilities that the Crown was exposed to at 31 May 2014. The Risks and Scenarios chapter also includes further discussion on risks to the Crown's balance sheet.


  • [6]Proceeds from the Government Share Offer programme were set aside to fund future new capital spending through this Fund. Refer to the 2014 Budget Update page 41 for further information on the Future Investment Fund.
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